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Aipedia: Tax advisers
Tax advisers can use AI to draft replies to HMRC enquiries, but every factual statement and the tone must be checked, because the letter is the adviser's representation on the client's behalf. A careless reply can turn a routine check into a penalty case.
Part of: AI in Tax advisers
In short
Replies to HMRC compliance checks need accurate facts, precise technical points and a measured tone. AI tools can produce a fluent draft quickly, but they may fill gaps with plausible statements that are not true for this client, or adopt an argumentative tone. The PCRT AI guidance includes a scenario on AI-drafted HMRC letters with an unprofessional tone, and its professional behaviour section requires correspondence with HMRC to stay professional. An inaccurate reply can escalate an enquiry and increase penalties. Clients may claim the extra cost from the adviser, which PI usually covers subject to its terms.
Enquiry and compliance check work involves reading HMRC's letter, gathering client information and drafting a response that answers each question. AI tools are used to summarise the letter, draft replies, suggest technical arguments and polish wording. Some firms feed in the whole file and ask for a complete response. That saves time on routine checks, but it is easy to send a reply that sounds right without confirming each point with the client.
PCRT already makes the adviser responsible for what is said to HMRC on a client's behalf. AI does not change that, but it does make careless inaccuracy easier.
Illustrative scenario: HMRC writes asking about a large payment into a client's account. The adviser asks an AI tool to draft a reply from the file. The draft states that the payment was a loan from a relative, because a note in the file mentioned a family loan in a different year. The adviser sends it after a quick read. The client later produces documents showing the payment was sale proceeds. HMRC treats the earlier reply as inaccurate, widens the enquiry and seeks a higher penalty, citing the client's behaviour.
AI tools are also prone to answering a question HMRC did not ask, or volunteering analysis that opens a new line of enquiry. A reply that goes beyond the question, or concedes a technical point the adviser had not intended to concede, can be hard to withdraw later.
Tone is the other risk the PCRT scenario identifies. An AI draft asked to "push back firmly" can produce sarcasm or accusations that damage the relationship with the HMRC officer and the client's position on penalty mitigation.
If the adviser's inaccurate reply causes loss, such as higher penalties or a longer enquiry, the client's claim is a civil liability claim, which the CIOT/ATT PII Regulations require cover for. PI usually responds subject to the terms and the excess. The professional fees of handling an enquiry are not usually a PI matter: they sit under fee protection or tax investigation insurance. See HMRC tax investigation costs and the HMRC enquiry window. If a reply may have been wrong, notify insurers early; see circumstance notification.
Related: AI-drafted tribunal submissions, client data in AI tools and the AI in tax advice hub.
Apex arranges PI for tax advisers who handle HMRC enquiries. A broker can explain where PI ends and tax investigation or fee protection cover begins.
Yes, provided you check every statement and the tone before sending. The PCRT AI guidance includes a scenario on AI-drafted HMRC letters with an unprofessional tone and requires correspondence with HMRC to remain professional. The adviser is responsible for what the letter says.
Correct it with HMRC promptly once you know, after discussing it with the client. An uncorrected inaccuracy can increase penalties. If the error may cause the client loss, consider notifying your PI insurer as a circumstance.
It can be. PCRT AI para 4.2 says inputting client data into public AI tools is likely to breach client confidentiality without the client's consent. Anonymise where possible, or use a tool that keeps data within the firm's control and is covered by firm policy.
Not usually. PI responds to claims that you caused a client loss. The cost of professional time in defending an enquiry is commonly covered by fee protection or tax investigation insurance rather than PI.
Tell us about your firm and the work you do. A broker will review how your current PI treats AI-assisted work, or arrange new cover. No fee for a quote. Or call 0117 325 0027.
Start a PI quote Request a callbackApex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales, company number 07014570. This page is general information about how AI is used in the profession and how insurance may respond. It is not legal, regulatory or insurance advice on your circumstances, and it does not guarantee that cover will be available or on what terms.
